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PNC Financial (PNC) Signs Deal to Buy BBVA USA Bancshares

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The PNC Financial Services Group, Inc. (PNC - Free Report) ) has agreed to acquire BBVA USA Bancshares, Inc., including its U.S. banking subsidiary, BBVA USA from Banco Bilbao Vizcaya Argentaria, S.A. (BBVA - Free Report) . The all-cash transaction is valued at $11.6 billion.

The transaction has been priced at 134% of BBVA USA's tangible book value, based on its balance sheet as of Sep 30, 2020. Also, it reflects a deposit premium of 3.7%.

Notably, the deal, expected to close in mid-2021, is part of PNC Financial’s effort to expand presence in international markets. 

Bank of America (BAC - Free Report) , Citigroup (C - Free Report) , Evercore and PNC Financial Institutions Advisory were the financial advisers for PNC Financial, while J.P. Morgan Securities plc acted as financial adviser to BBVA.

"Our acquisition of BBVA USA will accelerate our growth trajectory and drive long-term shareholder value through a strategic deployment of the proceeds from the sale of our BlackRock investment," said William S. Demchak, chairman, president and chief executive officer at PNC Financial.

Benefits From the Deal

PNC Financial anticipates the deal to be 21% accretive to its earnings in 2022. Also, the company expects the acquisition to replace the net income that PNC Financial earned from its passive equity investment in BlackRock, divested in May 2020.

The transaction has an estimated internal rate of return to PNC Financial in excess of 19%. Also, the acquisition will increase the company’s deposits and loans by about $86 billion and $66 billion, respectively, based on BBVA USA's balance sheet as of Sep 30, 2020.

Post deal closure, the estimated allowance for credit losses to total loans for the combined entity is 2.85%, including reserves for the acquired loans from BBVA USA of 3.85%.

PNC Financial expects to incur merger and integration costs of $980 million. It will include $250 million in write-offs of capitalized items, and achieve cost savings of more than $900 million, or 35% of BBVA USA's 2022 estimated annual noninterest expense through operational and administrative efficiency improvements.

Shares of PNC Financial have gained 18% over the past six months compared with the 19.2% growth of the industry.

Currently, PNC Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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